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Equity and efficiency considerations in area versus individual yield insurance

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  • Calum G. Turvey
  • Zahirul Islam

Abstract

Equity and efficiency considerations in area versus individual crop insurance are investigated for 609 Ontario cash crop farms. Results show that the relationship between individual and area premiums and risk reduction are explained by systematic and non‐systematic yield risk relationships. On average, area insurance premiums are much lower than individual yield insurance premiums, and in terms of efficiency in risk‐reduction individual plans are superior to area plans. As it turns out arguments of asymmetric information which has lead some researchers to investigate area vs. individual yield insurance is not totally resolved. Inequities in the benefits of area plans across farmers are not equitably distributed, favouring high‐risk producers. Adverse selection causes instability in the pooled contracts which will ultimately cause area insurance plans to fail.

Suggested Citation

  • Calum G. Turvey & Zahirul Islam, 1995. "Equity and efficiency considerations in area versus individual yield insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 12(1), pages 23-35, April.
    • Handle: RePEc:bla:agecon:v:12:y:1995:i:1:p:23-35
    DOI: 10.1111/j.1574-0862.1995.tb00348.x
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    Cited by:

    1. Jennifer Ifft, 2009. "Government vs Weather The True Story of Crop Insurance in India," Working Papers id:2268, eSocialSciences.
    2. M J Bhende, 2012. "Agricultural Insurance in India: Problems and Prospects," Working Papers id:4840, eSocialSciences.
    3. Turvey, Calum G., 2010. "Whole Farm Income Insurance in a Canadian Context," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61732, Agricultural and Applied Economics Association.
    4. Zhang, Jingong & Tan, Ken Seng & Weng, Chengguo, 2017. "Optimal hedging with basis risk under mean–variance criterion," Insurance: Mathematics and Economics, Elsevier, vol. 75(C), pages 1-15.

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